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A nonparametric quantity-of-quality approach to assessing financial asset return performance

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  • M. Ryan Haley

    (University of Wisconsin Oshkosh)

Abstract

This paper adapts two recent developments from the bibliometric literature to the problem of assessing the return performance of a financial asset. The result is a quantity-of-quality metric, which is both nonparametric and moment-free. As such, it offers a nonstandard perspective on the informational patterns in asset returns, and accordingly can complement traditional moment-based asset evaluation methods. The proposed approach is simple to apply, and while moment-free, captures intuitively important aspects of asset performance such as location, upside potential, downside risk, and volatility. It can also be expressed as a reward-to-risk ratio, which serves as a counterpart to the Sharpe ratio. Empirical and simulation results suggest that, relative to the Sharpe ratio, the proposed approach prefers assets with moderately higher means and standard deviations, and more favorable skewness.

Suggested Citation

  • M. Ryan Haley, 2018. "A nonparametric quantity-of-quality approach to assessing financial asset return performance," Annals of Finance, Springer, vol. 14(3), pages 343-351, August.
  • Handle: RePEc:kap:annfin:v:14:y:2018:i:3:d:10.1007_s10436-018-0319-2
    DOI: 10.1007/s10436-018-0319-2
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    References listed on IDEAS

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    1. Bornmann, Lutz & Mutz, Rüdiger & Hug, Sven E. & Daniel, Hans-Dieter, 2011. "A multilevel meta-analysis of studies reporting correlations between the h index and 37 different h index variants," Journal of Informetrics, Elsevier, vol. 5(3), pages 346-359.
    2. M. Ryan Haley & Charles Whiteman, 2008. "Generalized Safety First and a New Twist on Portfolio Performance," Econometric Reviews, Taylor & Francis Journals, vol. 27(4-6), pages 457-483.
    3. Victor DeMiguel & Lorenzo Garlappi & Raman Uppal, 2009. "Optimal Versus Naive Diversification: How Inefficient is the 1-N Portfolio Strategy?," The Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1915-1953, May.
    4. Michael Stutzer, 2011. "Portfolio choice with endogenous utility: a large deviations approach," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 43, pages 619-640, World Scientific Publishing Co. Pte. Ltd..
    5. G. Hanoch & H. Levy, 1969. "The Efficiency Analysis of Choices Involving Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 36(3), pages 335-346.
    6. M. Ryan Haley & Harry J. Paarsch & Charles H. Whiteman, 2013. "Smoothed safety first and the holding of assets," Quantitative Finance, Taylor & Francis Journals, vol. 13(2), pages 167-176, January.
    7. Bawa, Vijay S, 1976. "Admissible Portfolios for All Individuals," Journal of Finance, American Finance Association, vol. 31(4), pages 1169-1183, September.
    8. Haley, M. Ryan & McGee, M. Kevin, 2011. ""KLICing" there and back again: Portfolio selection using the empirical likelihood divergence and Hellinger distance," Journal of Empirical Finance, Elsevier, vol. 18(2), pages 341-352, March.
    9. Blaise Cronin & Lokman Meho, 2006. "Using the h‐index to rank influential information scientistss," Journal of the American Society for Information Science and Technology, Association for Information Science & Technology, vol. 57(9), pages 1275-1278, July.
    10. M. Ryan Haley, 2017. "K-fold cross validation performance comparisons of six naive portfolio selection rules: how naive can you be and still have successful out-of-sample portfolio performance?," Annals of Finance, Springer, vol. 13(3), pages 341-353, August.
    11. Chun-Ting Zhang, 2009. "The e-Index, Complementing the h-Index for Excess Citations," PLOS ONE, Public Library of Science, vol. 4(5), pages 1-4, May.
    12. Bawa, Vijay S., 1978. "Safety-First, Stochastic Dominance, and Optimal Portfolio Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(2), pages 255-271, June.
    13. M. Ryan Haley, 2013. "Rank variability of the Publish or Perish metrics for economics and finance journals," Applied Economics Letters, Taylor & Francis Journals, vol. 20(9), pages 830-836, June.
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    More about this item

    Keywords

    Nonparametric estimation; Moment-free decision models; h-index; e-index;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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